What can African leaders learn from Javier Milei?

by MMC
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When Javier Milei took over as Argentine president in December, it marked a historic first. Never before has the country elected a doctrinaire libertarian to lead it. But this was not surprising, as Argentina’s economy urgently needed rescuing. After decades of misguided policies, Argentina has become the horror story that other economies use to scare themselves. And it would take a series of economic “miracles” to revive it.

The initial “miracle” occurred in January when the government achieved a positive public finance balance of $589 million. This is the country’s first budget surplus in about 12 years. And all of a sudden, a country that has lost access to capital markets is back on investors’ watch lists.

It should be noted that the macroeconomy has not improved. Poverty levels are currently at their highest level in 20 years in Argentina, in part because Milei devalued the peso shortly after his inauguration. Argentina experienced an inflation rate of 20.6% in January, with a 12-month rate of 254.2%. However, many African leaders can learn from his approach to restoring fiscal stability.

Since 1950, Argentina has spent more time in recession than any other nation except the Democratic Republic of Congo. Last year was no exception, as the economy entered its sixth recession in a decade.

The country’s only remaining lifeline, a $43 billion deal with the International Monetary Fund, was fraying because the previous government had failed to meet its deficit targets, spending big before losing the election by an overwhelming majority. Many African countries can relate. Nigeria, for example, tripled its debt burden in less than eight years before its last election and still found itself in recession. The new presidents of Nigeria and Argentina took on extremely difficult tasks as they had to save fragile economies. Yet there is a night and day difference between their approaches.

The first lesson, and probably the most remarkable, is that Milei recognizes his country’s fiscal reality. In his first address to the nation, Milei struck an ominous tone and warned that he would begin the term with an abysmal reduction in public spending of around $20 billion. “There is no possible alternative to adjustment. There is no money,” he said. He described a scenario so bleak that even the thousands of supporters gathered in the streets remained silent during part of his speech. The planned spending cuts amounted to 5% of GDP, and Milei hinted that he would eliminate subsidies for public transport, gas, electricity and water. Nothing about these measures is pleasant. But they were not surprising.

The second learning point concerns Milei’s body language. His background was unconventional and controversial, so he had to lead by example by adopting a frugal lifestyle. He began flying commercial class to show people that his administration had no intention of living large at their expense. One might wonder whether or not this decision has a direct impact on the country’s finances. But what’s more important is the message. Nigeria’s new leader, who has also touted the merits of a subsidy-free economy, authorized the purchase of several new vehicles for himself, his wife, aides and senators, shortly after asking the public to withstand the new shock waves.

Perhaps Milei would succeed in reviving the Argentine economy; maybe he won’t. But what is clear from his first months in office is that reducing the costs of governance is crucial to reviving a struggling economy. Argentina’s fiscal miracle may not be replicable (or even desirable) in all countries. But at least it shows what’s possible.

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